Employers started the year by adding more workers to their payrolls. Here are the five things we learned from U.S. economic data released during the week ending February 2.
Employers picked up their pace hiring in January, and some wage growth followed. Nonfarm employers added a seasonally adjusted 200,000 workers during the month, making it the 88th consecutive month in which payrolls had expanded. The Bureau of Labor Statistics also downwardly revised (by 36,000) its estimate for November to new 216,000 jobs while adding 12,000 jobs to its December payroll estimate (to +160,000). The private sector expanded payrolls by 196,000 workers in January, with construction (+36,000), leisure/hospitality (+35,000), health care/social assistance (+25,800), and professional/business services (+23,000) adding the most jobs. While the average workweek shrank by 2/10th of an hour to 34.3 hours, hourly wages grew by nine cents to $26.74 (+2.9 percent vs. January 2017, its best since June 2009). Average weekly earnings of $917.18 represented a 2.6 percent increase from a year earlier. 
Based on a separate survey of households, the unemployment remained at its post-recession low of 4.1 percent for a fourth consecutive month. The unemployment rate was at 4.8 percent a year earlier. The labor force grew by 185,000 people while the labor force participation rate held firm at 62.7 percent. The labor force participation rate for adults 25-54 slipped by a tenth of a percentage point to 81.7 percent, which was up 3/10ths of a percentage point from a year earlier but still below the 83.2 percent reading from the start of the last recession (December 2007). While the typical length of unemployment crept up by 3/10ths of a week to 9.4 weeks, this was still below the 10.3 week median of January 2017. Finally, the broadest measure of labor underutilization from the BLS—the U-6 series—added 1/10th of a percentage point to 8.2 percent. A year earlier, the same measure was at 9.4 percent.
Consumer spending was resilient in December. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.3 percent during the final month of 2017 on a seasonally adjusted basis. While still strong, this was down from the 0.5 percent gain in November. Nonetheless, real spending has grown 2.8 percent over the past year. Real spending on both goods and services each increased 0.3 percent during the month, with the former split between a 0.8 percent gain for durable goods while nondurable goods spending held firm. Without adjustments for inflation, nominal PCE gained 0.4 percent in December, funded by a matching 0.4 percent increase in personal income. Disposable income grew at a slower pace: 0.3 percent on a nominal basis and 0.2 percent after adjustments for inflation. Real disposable income has swelled 2.1 percent over the past year. Americans were putting less money away for a rainy day as the savings rate fell to +2.4 percent (a 12-year low).
The FOMC did not make a move at its first 2018 meeting. The policy statement released following this past week’s Federal Open Market Committee (FOMC) meeting noted that the U.S. economy was growing at a “solid rate” and the labor market had “continued to strengthen.” The word “solid” also was used to describe improvements in “household spending, and business fixed investment.” On the other hand, the statement notes the inflation remained under the Federal Reserve’s two-percent target rate (but that FOMC members believe inflation will “move up” this year to the target rate). As a result, the committee unanimously voted to maintain the fed funds target rate at a range between 1.25 and 1.50 percent, which it sees as being “accommodative.” The consensus thinking is that the FOMC will bump up the fed funds target rate by 25-basis points at its March meeting.
One measure of consumer sentiment gained in January while another essentially matched its previous month’s mark. The Conference Board’s Consumer Confidence Index rebounded in January following slumping at the end of December, adding 2.3 points to a seasonally adjusted reading of 125.4 (1985=100). A year earlier, the index was at a reading of 111.6. The current conditions index slipped by 1.2 points to 155.3 while the expectations index gained 4.7 points to 105.5. 34.9 percent of survey respondents agreed that current business conditions were “good” versus 12.7 percent saw them as “bad.” Similarly, 37.9 percent of Americans felt that jobs were “plentiful” while only 16.4 percent were reporting that jobs were “hard to get.” The press release noted that perceptions about current economic conditions were “at historically strong levels,” but consumers were “somewhat ambivalent about their income prospects over the coming months.”
The University of Michigan’s Index of Consumer Sentiment lost 2/10ths of a point in January to a seasonally adjusted 95.7 (1966Q1=100). This was 2.8 points below its year-ago reading. The current conditions index dropped 3.3 points to 110.5 (January 2017: 111.3) while the expectations index gained two full points to 86.3 (January 2017: 90.3). The 2017 average for the Index of Consumer Sentiment was 96.8, its best average sine 2000. The press release indicates that stock market advances and the recently passed tax bill “were mentioned by all-time record numbers of consumers.” Further, the group sees real consumer spending growing 2.8 percent based on the survey data.
Manufacturing activity remained strong in January. The Purchasing Managers Index (PMI) edged down by 2/10th of a point to 59.1, according to the Institute for Supply Management. This was the 17th consecutive month in which the PMI was above a reading of 50, indicative of an expanding manufacturing sector. Two of the five PMI components improved from their December 2017 readings: inventories (up 3.8 points to 52.3) and supplier deliveries (up 1.9 points to 59.1). Falling were indices for employment (down 3.9 points to 54.2), new orders (down 2.0 points to 65.4), and production (down 7/10ths of a point to 64.5). Respondents from 14 of 18 manufacturing industries indicated expanding during the month, led by textile mills, fabricated metal products, and plastics/rubber products.
Other U.S. economic data released over the past week:
– Jobless Claims (week ending January 27, 2018, First-Time Claims, seasonally adjusted): 230,000 (-1,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 234,500 (-5.1% vs. the same week a year earlier).
– Factory Orders (December 2017, New Orders for Manufactured Goods, seasonally adjusted): $498.2 billion (+1.7% vs. November 2017, +8.3% vs. December 2016).
– Construction Spending (December 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.253 trillion (+0.7% vs. November 2017, +2.6% vs. December 2016).
– Pending Home Sales (December 2017, Index (2001=100), seasonally adjusted): 110.1 (+0.5% vs. November 2017, +0.5% vs. December 2016).
– Vehicle Sales (January 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.16 million vehicles (-3.9% vs. December 2017, -1.6% vs. January 2017).
– Productivity (4th Quarter 2017, Nonfarm Output Per Hour, seasonally adjusted): -0.1% vs. Q3 2017, +1.1% vs. Q4 2016.
– Case-Shiller Home Price Index (November 2017, 20-City Index, seasonally adjusted): +0.7% vs. October 2017, +6.4% vs. November 2016).
– Agricultural Prices (December 2017, Prices Received by Farmers (Index: 2011=100)): 91.7 (vs. November 2017: 91.0, vs. December 2016: 87.8).
The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.
What We Learned About the U.S. Economy Last Week 